IFRS

IFRS Contributes To Increased Transparency

IFRS Contributes To Increased Transparency

International Financial Reporting Standards is the combination of accounting standard. It states that how different types of the transaction and other accounting events should be reported in the financial statement. It is declared by the International Accounting Standards Board.

International Financial Reporting Standards (IFRS) aspires to bring the entire nations in the world under a similar set of global accounting standards that presents consistency, transparency, and compatibility in financial reporting system. According to a fact financial regulators in several countries have generated high demand for IFRS compliant financial statement (David, Christopher, 2008, p. 113-115).

The International Financial Reporting Standard (IFRS) for Small and Medium size corporations published as an introductory plan by the IASB in 2007. This system introduced and designed for companies that have no public accountability. If the company's shares or debts listed and floated in the public exchange or financial institution company only then there would be Public Accountability. The IFRS for SME (IFSME) have capabilities to apply in the large range of private organizations (David, Christopher, 2008, p. 113-115). In 113 countries, more than 12,000 companies have implemented IFRS in some degree, and many other countries are enduring to implement the standards each year with the expectation of increased comparability of financial statement.

According to proponents of International Financial Reporting Standards (IFRS), publicly traded companies must apply a single set of high quality accounting standards, for the preparation of consolidated financial statements, to contribute to better functioning capital markets (Quigley, 2007, p. 23). IFRS have the potential to facilitate cross-border comparability and increase reporting transparency, enabling stakeholders to understand the financial results of entities globally. Moreover, IFRS adoption could decrease information costs, thereby increasing the liquidity, competition and efficiency in the markets (Ball, 2006, p. 5). Corporations might also benefit by reducing information asymmetry, enabling them to make more efficient investment decisions, and thus lowering their cost of capital (Choi and Meek, 2005, p. 101). Investors may also benefit as it could lead to more-informed valuation of equity markets reducing the risk of adverse selection for the less-informed investors.

Transparency, in recent times, has become an issue, as a result of events such as the Enron accounting scandal, coinciding with the progressive adoption of the International Accounting Standards Board (IASB) issued International Financial Reporting Standards (IFRS) worldwide in replacement of the Generally Accepted Accounting Principles (GAAP). The implementation of the Sarbanes-Oxley (SOX) reporting requirements for corporate governance in the United States, and the credit crisis precipitated when transactions appear to have involved misunderstood, misused, and misrepresented financial products (Nandakumar, 2011, p. 87).

All of these benefits from conversion will come with the price and challenges. The most important goal of conversion to International Financial Reporting Standards is transparency and investors protection. The cost, effort, and the time required to convert to IFRS depend different, influential factors. For example, does the organization have multiple reporting entities? Or, does the organization engage in complex and sophisticated financial transactions? This consideration, as well as many others, are unique ...